Behold Square, the first Eunuchorn
The judicious metaphor for the Square IPO turned out to be hidden inside its prospectus all along: the glass faucet.
Square has priced its initial public offering at $9 a share. That's a good thing, in that it's going public at all after months, or even years, of expectation. But it's a not-so-good thing, because it's below the range of $11 a share to $13 a share that it proffered earlier this month. This may be a last-minute ploy to help underwriters stage a first-day pop of Square's stock. If so, that doesn't matter. First-day pops of underpriced IPOs tend to fade after a few months.
Let's not confront the grim future before we must. Let us linger, while we can, in the halcyon verbiage of the days when tech founders could ramble on before their future shareowners. Recall how, in “A Note from Jack,” Square's part-time CEO inserted a folksy post-it note inside the company's S-1. Dorsey states right off the bat that he and co-founder Jim McKelvey started Square after McKelvey “couldn’t accept a credit card for his art.”
Craftsmen weary of Etsy, authors railing against Amazon, musicians raging at Spotify – all of you who have pledged your lifelong souls to the glory of the arts, don't you hate it when you can't accept a credit card? More than skyrocketing rents? And don't you love the thought that, once Square does go public, McKelvey will have made more money off complaining about his failure to sell art than he ever made as a true artist?
If the answer is no, please accept the cold comfort that the public stock market shares your lack of enthusiasm about Square's stated goals of fairness and inclusion.
In the roadshow video that Square produced to persuade investors it is the future, Dorsey is absent – somewhat, and oddly, appropriately – for about 34 of its 39-minutes. And yet its tone is very Dorsey: so keen to stay true to the polished Dorsey™ image it loses sight of how to talk to investors, who don't care about production values - this is, after all, a cohort that has kept Powerpoint alive decades after it deserved to die – and solely about a return on their money.
Kudos where they are earned, though. Square created the most stylish roadshow presentation I've ever seen. It has the kind of frenetic, quick-cut editing pioneered by MTV and adopted by any action-movie director afraid to admit he didn't know what he was doing. It has the snappy, click-happy soundtrack you'd expect to find backing the manic violins of a Riverdance world tour. It has Dorsey laughing, awkwardly, at his own wit, but the editor has sliced this spectacle down to a mere second or so, and for that I want to thank the editor.
But there is one moment in the video that stood out for me. Dorsey is again telling the creation myth of Square: “Back in 2009, I got a call from my co-founder Jim McKelvey. He said, 'Jack, I'm so frustrated I just lost a sale.'” Quick-cut to McKelvey: “I was trying to sell a piece of glass.”
Wait. A piece of glass? This gale of disruption being unleashed onto the public markets started because someone couldn't sell a piece of blown glass? That's okay. Well, maybe. Blown-glass art is much like growing a fern garden, or wearing bell-bottoms, or... okay, why not, playing the jazz flute. There was a brief moment in history that tolerated all of these things, and since then only the most creative of artists could pull them off without reproof. McKelvey's new twist was a sculptured glass faucet that, klutz that I am, I'd almost certainly break with my face the first time I tried to use it washing up. So, no thanks on that innovation.
The creation myth in Silicon Valley is not what it used to be. The garage at 367 Addison Avenue in Palo Alto may have been messy once, but it's tidy by contemporary standards. Steve Wozniak has notably called the garage myth overblown. eBay's founding had nothing to do with the putative Pez dispensers for Pierre Omidyar's fiancee but came from a desire to sell a broken laser pointer online. The inflatable bed that lies at the foundation of Airbnb – does anyone want to know its true history before paying to sleep on it?
Now that Square's IPO has priced so cheaply, the glass faucet makes sense. Square has wended deftly its way through the old and crusty IPO pipeline. That pipeline itself may have been constructed decades ago – who cares that the ceramic facade is cracked enough to be leaking value into the surrounding soil? – but now it's the last few fancy, fragile feet that are proving to be the most precarious. The closer the Square IPO flows to the cup its new investors will drink from, the more investors grow concerned about its purity.
To recap, Square's private investors valued the company at $6 billion thirteen months ago. Last week, when it initially priced its IPO, it still aspired to a valuation as high as $4.2 billion. Now, it's hoping for $2.9 billion. Which is below the $3.25 billion it raised at more than three years ago. Unless you happened to invest in the $6 billion round, in which case a ratchet provision may have guaranteed your investment – at the expense of new investors who are automatically diluted when they buy at $2.9 billion. Which is why nobody wanted to buy it at... Excuse me, my head hurts.
From the silver-linings department, this is okay because Square didn't really need the money. It still has $174 million in cash. But by being the first out the gate, Square is pulling down public market valuations for anyone who follows. (Yes, Sean Rad's sodomy-for-sapiosexuality malapropism hurt but – weird as it seems – Match is profitable and Square isn't. So sodomy > net loss. By Wall Street's weird logic, Rad wins, Dorsey loses.)
On reading about Square's $9 a share offering price, I asked on Twitter whether the phrase eunuchorn has been coined. Of course it has. (There are even images but I recommend not searching for them.) Just as there were unicorns before the breed became a metaphor for excessive valuations, Square is poised to be the first eunuchorn, emasculated to a fraction of its early promise. And, from the looks of things this week at least, it won't be the last.
Among the final words spoken on Square's roadshow video are those from an older, warmly wrinkled proprietor who speaks inside the kind of all-white, surfaceless venue that looks trendy today but feels like it will be as outdated as blown glass in a few years. “There's a feeling that I made this,” the man says, before shooting a self-deprecating gaze sidewards from the camera's lens. “I made this happen.” And then it fades to black.
Now that Square is going public, Jack Dorsey™ could say the same thing.